NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed its 'AA' rating on approximately $57.8
million of Montgomery County Revenue Authority (MCRA) lease revenue
bonds (the bonds) issued on behalf of Montgomery College (MC or the
college), consisting of:

--$15 million tax-exempt and taxable lease revenue bonds (Montgomery
College Goldenrod Building Acquisition) series 2011A and series 2011 B;

In accordance with Fitch's policies the college appealed and provided
additional information to Fitch that resulted in a rating action on the
series 2005 A bonds that is different than the original rating committee
outcome.

SECURITY

The series 2011 A and B bonds are secured by a general obligation of the
college under a lease agreement. The college and county are parties to a
sublease under which the county pays half of the lease payments which is
available to pay debt service for the life of the bonds, although such
amounts are not pledged for such purpose.

The series 2008 A are secured by transportation fee revenues, and the
series 2005 A bonds are secured by facility fee revenues. The series
2008 and series 2005 are additionally secured by a mortgage and debt
service reserve funded to maximum annual debt service (MADS).

RATING AFFIRMED: The 'AA' rating primarily reflects MC's sound market
position and key role in the state of Maryland's education planning and
economic development, which drives significant operating and capital
support from the state (rated 'AAA'/Stable Outlook by Fitch) and
Montgomery County (rated 'AAA'/Stable Outlook). Offsetting factors
include a history of negative, though improving, GAAP-based operating
margins, exposure to fluctuations in state and county support, and
vulnerability to shifting enrollment and economic cycles.

ENROLLMENT SOFTENING: The college is confronting declining enrollment
primarily due to shifting county demographics and improving economic
conditions. Operating stability is predicated on the college's ability
to adjust tuition and fee rates as necessary, prudently budget for
declining enrollment, and realize the projected levels of county and
state support.

LIMITED BUT ADEQUATE LIQUIDITY: The college's liquidity continues to
provide a limited cushion relative to operations, a feature not uncommon
among community colleges. Available funds provide sound coverage of pro
forma debt which is viewed favorably by Fitch and meets expectations for
the 'AA' rating.

LOW DEBT BURDEN: The majority of the college's recent capital projects
have been funded by state and county appropriations resulting in a very
low debt burden. Further, improved operations have resulted in pro forma
MADS coverage from fiscal 2013 unrestricted operating revenues of 2.1x.
Pro forma MADS includes the planned issuance of transportation fee
revenue bonds expected in mid-fiscal 2015.

RATING SENSITIVITIES

REVENUE PRESSURES: The rating is sensitive to material shifts in funding
support from county and state sources. To the extent that adverse shifts
in the aforementioned areas materialize and impose significant,
prolonged stress on operating performance and financial resources,
downward rating movement is possible.

DIMINISHING DEMAND PROFILE: A significant decrease in semester credit
hours may adversely affect pledged revenues on the series 2005A facility
fee revenue bonds and series 2008A transportation revenue bonds. The
college's inability to sufficiently offset enrollment losses by
adequately setting rates to generate at least the projected coverage
levels presented to Fitch for fiscal 2014 through fiscal 2018 could lead
to a downgrade of either or both of the respective bonds.

CREDIT PROFILE

In operation since 1946, the college is the second largest higher
education institution in the state, after the University System of
Maryland (USM; tuition revenue bonds rated 'AA+'/Stable Outlook), and is
the primary state provider of two-year associate degrees and technical
certificates. The college is a feeder of transfer students to USM, and a
growing source of various training and continuing education programs
underscoring its key role in the state. The institution, offering 75
associate degree programs and 60 certificate programs, operates three
campuses located throughout the county in Takoma Park/Silver Spring,
Rockville, and Germantown. Headcount enrollment at the college in fall
2013 is essentially flat since fall 2009 levels, at 26,155 students.

NARROWING OPERATING DEFICIT DRIVES OUTLOOK REVISION

The Outlook revision to Stable from Negative reflects improvement in the
operating deficit in fiscal 2013 over the prior year to negative 3.1% on
an adjusted accrual (GAAP) basis from negative 5.8%. The college's
operating margin is typically solidly negative before revenue
adjustments for non-capitalized expenses (capital appropriation funds
used for operations) which are included in operation of plant. The
narrowing deficit in fiscal 2013 is attributable to an increase in state
and county funding over the prior year coupled with mid-year budget
revisions. The improvement in fiscal 2013 is viewed favorably after
declining state and county appropriations and a one-time bonus payment
made to employees in fiscal 2012. Additionally, Fitch notes that it is
the college's policy to meet the county request for the college to
reserve monies from the current budget to fund future budgeting periods,
which could impact operations.

Further, projections for fiscal 2014 show the deficit stabilizing but
slightly down at negative 3.4%, with the college's fiscal 2015 operating
budget plan reflecting significant improvement due to increased support
from the state and the county and an increase in tuition rates which is
expected to offset declining enrollment and stabilize net tuition
revenues at or close to current levels. Projections provided reflect
still negative but closer to break-even results for fiscal 2015. The
county's credit strength together with its strong and consistent
financial support (under the state regulated County Maintenance of
Effort) is a key driver of the college's 'AA' rating. The large,
affluent service area and significant county support partially offset
the college's weaker financial attributes.

IMPROVED LOCAL SUPPORT

The college fills an integral position in the higher education system of
the state and the economic operation of the county. Local support from
the state and county is a key revenue source for the college accounting
for 53% of operating revenues in fiscal 2013, down from 58.1% in fiscal
2009. Appropriations at both the state and county level increased a
total $2.4 million in fiscal 2013 versus a decrease of $4 million in
fiscal 2012. Estimates for fiscal 2014 reflect further improvement in
support for operations (4.1%, or $5.9 million) with more significant
growth expected for fiscal 2015 under the proposed budget. An increase
of approximately $21 million from both the state ($3 million) and the
county ($17.8 million) is anticipated in fiscal 2015.

The state and county have also historically provided significant capital
appropriations (totaling $198.8 since fiscal 2009) to mitigate MC's
space deficiency, which has contributed to a very low debt burden. The
capital appropriations have also shown improvement, with capital support
increasing to $58.3 million in fiscal 2013 versus $35.6 million in
fiscal 2012. Estimates provided reflect an increase in capital support
for fiscal 2014 to $63.6 million.

Fitch will continue to monitor growth and consistency in state and
county appropriations, as well as growth in federal grants and
contracts, which will be needed as enrollment declines over the next
several years. Fitch views revenue estimates for fiscal 2014 positively,
reflecting improvement in total state and county support for operations
with more significant growth expected for fiscal 2015.

MANAGEABLE ENROLLMENT SHIFTS

Enrollment at MC, like many community colleges, has generally moved in
tandem with unemployment levels and improvements in the economy, with
several years of growth beginning to show signs of reversal. After
peaking at 7.5% in 2010, the state annual unemployment rate has
generally trended downward, registering 6.6% in 2013 per the Maryland
state archive. After increasing to 27,453 in fall 2012, headcount
enrollment dropped 4.7% in fall 2013 to 26,155 reflecting the sharp
decrease in enrollment hours taken (including credit and non-credit or
distance education hours) in fiscal 2014. After historically meeting its
enrollment projections and exceeding projected enrollment hours in
fiscal 2012 which strongly drives coverage on the series 2005 A and
series A revenues bonds, the college missed its fiscal 2013 projections.
Fiscal 2014 projections reflect a 4.6% drop in credit enrollment hours
to 517,278 from 542,186 in fiscal 2013, but partly offset by an increase
in non-credit enrollment hours. Management is expecting credit
enrollment hours to continue to decline for the next 3-4 years before
stabilizing.

Enrollment of recent high school graduates in the Montgomery County
Public Schools (MCPS) declined 3%-4%; such enrollment is the largest
feeder into the college. However, according to management, traditional
enrollment should improve as the population of elementary and middle
school students in the county is growing rapidly. Despite the decline in
enrollment credit hours, distance education non-credit enrollment
continues to be healthy according to management.

Fitch expects the college can manage and prudently budget for the
declining enrollment as enrollment projection models are developed
one-to-two years in advance when revenue estimates are constructed for
the budget. Fitch views positively MC's strong market position as the
state's largest community college and the only community college in the
county. As such, the college plays an integral role in the state higher
education system and is the largest transfer institution to the
university system of Maryland. Articulation agreements with all of the
state's public institutions serve to encourage students to pursue
baccalaureate degrees.

VERY LOW DEBT BURDEN; ADEQUATE COVERAGE

The college's pro-forma MADS due in fiscal 2028 represented a very low
2.1% of fiscal 2013 operating revenues. The college's improved
operations in fiscal 2013 resulted in $12.1 million of net income
available for debt service, providing 2.1x pro forma MADS coverage. Pro
forma MADS (estimated at $5.8 million) includes $16 million of
additional debt that the college expects to issue in mid-fiscal 2015 to
fund construction of a parking garage payable from a mandatory
transportation fee pledged to the bonds on parity to the series 2008A
bonds. However, coverage is somewhat understated because debt service on
the series 2011 A and B bonds is approximately equal to annual lease
payments currently paid for use of the facility purchased with bond
proceeds and operating revenues from the county's lease payments
(guaranteed for the term of the bonds but not legally pledged) offset
approximately 50% of combined debt service under the lease agreement.

Further, the dedicated fee revenues pledged to both the series 2005
bonds ($5.00 per credit hour facilities fee) and the series 2008 A bonds
($4.00 per credit hour transportation fee) generated 1.38x coverage and
2.3x coverage of actual debt service on the respective obligations in
fiscal 2013. In addition to student transportation fees, other revenues
pledged to debt service on the series 2008A bonds include faculty
parking fees, parking fines, and interest earned on the Transportation
Enterprise Fund. Projections provided reflect slightly lower coverage
levels from these revenue sources in fiscal 2014 due to the projected
decline in enrollment hours.

On the series 2008A bonds, the board approved a $1 transportation fee
increase (to $5.00) for fiscal 2015 which will help offset the decrease
in enrollment hours, and is expected to generate coverage of 2.66x.
Fitch expects this coverage will decline in fiscal 2016 to 1.82x with
the issuance of additional debt secured by the transportation fee and
further projected enrollment losses but expects coverage will remain
solid at over 2x when including other income in the transportation fund
account. While no facility fee increase is anticipated for the series
2005A bonds at this time, a refunding of the bonds scheduled for early
fiscal 2015 is expected to generate annual savings providing projected
coverage of 1.4x in fiscal 2015; Fitch will continue to monitor coverage
of the facility fee and transportation fee bonds and the impact of the
negative enrollment trend on coverage levels. The college's strength is
its ability to raise fees if needed, by vote of the board of trustees.
An inability of the college to adequately adjust rates as needed and
generate actual fee revenue sufficient to achieve the projected coverage
levels presented could negatively impact the rating of the series 2005A
and series 2008A bonds.

CONSISTENT LIQUIDITY LEVELS

Continued support for capital projects from the county and state have
allowed the college to continue to improve its relatively low level of
balance sheet resources. Available funds, defined by Fitch as cash and
investments not permanently restricted, grew 2.5% in fiscal 2013,
respectively, as state/county funds for capital projects completed or
nearing completion were received. Over the past five fiscal years,
available funds have increased a total of 64.2% to $91.3 million.
Despite the recent improvements, available funds represent just 32.3% of
total operating expenses, somewhat low for the 'AA' rating but a more
robust 140.3% of total long-term debt. Available funds as a percentage
of total pro forma long-term debt drops to 112.6% if Fitch
conservatively includes the college's additional debt plans. Fitch still
finds this level to be adequate to maintain the 'AA' rating.

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